SELF EMPLOYED RETIREMENT PLAN CONTRIBUTION LIMITS

If you're self-employed, you may be wondering how much you can contribute to your retirement plan this year. These tables should help.

You may also have a traditional IRA or a Roth IRA, too, but we do not discuss those here, because these plans are available to everyone, not just self-employed folks.

Keogh Pension Plan

The maximum you can contribute depends on your net earnings from your business.

The net earnings from your business can be figured as the total income from your business operations, minus any deductions you're allowed to take for tax purposes. Those deductions include the deduction that you get for half of your self-employment tax and the deduction you're allowed for your pension contribution. Your net earnings can be thought of as your compensation from the business.
You can't use more than $200,000 of net earnings from your business when you figure out your contribution to your Keogh plan.
100 percent of your net earnings can be contributed but only 25 percent can be deducted.

Maximum Contribution	Maximum Deduction	When to Set Up the Plan	Last Date You Can Contribute
The smaller of $40,000, OR 100% of your net earnings from your business (up to a maximum of $200,000 of net earnings)	25% of all participants' compensation	Before the end of the tax year in which you're taking the deduction	The due date of the tax return on which you're taking the deduction

Defined Benefit Pension Plan

Maximum Contribution	Maximum Deduction	When to Set Up the Plan	Last Date You Can Contribute
Determined by actuarial calculations, but limited to the smaller of $160,000 or 100% of the average taxable net earnings from your business for your highest three consecutive years. The dollar limit would be reduced if you start taking benefits before age 62 and increased if you plan to start taking benefits after age 65.	Based on actuarial assumptions and calculations (translate this to mean that you need a professional to figure out your contribution and deduction).	Before the end of the tax year in which you're taking the deduction.	If your defined benefit plan is subject to minimum funding requirements, you must make contributions in quarterly installments. Otherwise, you must make contributions by the due date of the tax return on which you're taking the deduction.

SEP

The maximum you can contribute depends on your net earnings from your business.

The net earnings from your business can be figured as the total income from your business operations, minus any deductions you're allowed to take for tax purposes. Those deductions include the deduction that you get for half of your self-employment tax and the deduction you're allowed for your pension contribution. Your net earnings can be thought of as your compensation from the business.
You can't use more than $200,000 of net earnings from your business when you figure out your contribution to your SEP plan.

Maximum Contribution	Maximum Deduction	When to Set Up the Plan	Last Date You Can Contribute
The smaller of $40,000 OR 25% of your net earnings from your business (up to a maximum of $200,000 of net earnings).	25% of all of the SEP plan participants' compensation (if there are more than just you participate in the plan), less the amount of SEP contributions themselves.	Any time up until the due date of the tax return on which you're taking the deduction. This includes any extension you received by filing Form 4868 and Form 2688.	The due date of the tax return on which you plan to take the SEP deduction, including extension periods.

SIMPLE Plan (IRA Type)

Maximum Contribution	Maximum Deduction	When to Set Up the Plan	Last Date You Can Contribute
$8,000 or 100% of your income from self-employment, whichever is less.	Same as the maximum contribution.	Any time between January 1 and October 1. If you just started a business after October 1, set up your plan as soon as it's administratively feasible.	Elective contributions: 30 days after the end of the month for which you're making the contributions

Year by year, you can contribute more and more to your SIMPLE plan:

Year	Maximum Contribution Limit
2004	$9,000
2005	$10,000
2006 onward	Increases indexed to inflation in $500 increments

If you are 50 years old or above, you can make an extra contribution of $500 this year, and more in future years:

Year	Catch-up Contribution Increase
2004	$1,500
2005	$2,000
2006 onward	$2,500*

* This amount will be adjusted for inflation in $500 increments in 2007 and thereafter.

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